> ## Documentation Index
> Fetch the complete documentation index at: https://dso.getlemma.com/llms.txt
> Use this file to discover all available pages before exploring further.
# Produce investor-grade financial reporting
> The monthly close package a fundable DSO produces: per-office P&Ls, eliminations, the DSO EBITDA bridge, hygiene and write-off KPIs, fee coverage, an honest same-store definition, and an AR waterfall.
**Investor-grade reporting** means a monthly package a third party can read without asking you to explain the structure. For a dental support organization (DSO) that means showing the DSO standalone (what investors buy), the consolidated view (what auditors produce), and enough per-office detail to demonstrate the fee is real and the practices are healthy.
## Prerequisites
* Identical charts of accounts across PCs, with hygiene tracked as a department. See [Set up bookkeeping](/guides/banking/set-up-bookkeeping)
* Intercompany balances reconciling monthly
* Management fees invoiced and **paid in cash**
* 835-level data accessible for the AR waterfall
## The monthly package
Seven documents. Produce them from month one; the cost is low early and prohibitive to reconstruct later.
Show each PC and the DSO on a standalone basis, using the same format and account structure. Where one PC holds several offices, break the P\&L down **per office**. Buyers commonly underwrite at the office level, and a blended PC-level view can hide a weak location.
Show the eliminations as a visible column, not folded silently into the totals. Anyone reading it needs to see that management fee revenue and expense net to zero.
When the transaction involves DSO equity, show the DSO's standalone results separately from the group's consolidated or combined results. Patient-service revenue earned by the PCs should not be presented as though the DSO earned it. Label both views and identify the transaction perimeter.
From reported net income to adjusted EBITDA, with each adjustment named and quantified:
| Line |
| ----------------------------------------------------------------------------------------------------------------- |
| DSO net income |
| + Interest |
| + Taxes |
| + Depreciation and amortization |
| = **EBITDA** |
| + Normalization: friendly-owner compensation to market |
| + Add-back: credentialing J-curve and de novo ramp losses (label these clearly because buyers may challenge them) |
| + Add-back: non-recurring items, itemized |
| − Deduction: any fee revenue **accrued but not collected in cash** |
| = **Adjusted EBITDA** |
That last line is the one groups omit and buyers always find. Show it yourself.
Per office, per month:
| Metric |
| -------------------------------------------------- |
| Gross production and PPO write-offs |
| Net patient service revenue |
| Dentist and hygiene compensation |
| Lab fees and dental supplies |
| Management fee paid |
| **PC residual** |
| Dentist count (FTE) and production per dentist FTE |
| Hygiene share of production |
| Patient visits and new patients |
> **Can this PC pay its management fee out of its own collections, after clinical compensation and direct expenses?**
Report the ratio and trend for each PC. A PC that remains below 1.0 after its ramp may have a fee above what the entity can support, weak unit economics, or both. The first possibility also raises an FMV question. See [Where the profit lives](/concepts/finance/where-the-profit-lives).
Cash conversion by service-month cohort: for services rendered in month N, how much had been collected by month N+1, N+2, N+3, and so on.
This report shows collection velocity by service cohort and can reveal deterioration before it becomes visible in days in AR. It also gives an underwriter the analysis in a form you can define and reconcile.
## The KPI pack
Alongside the financials, monthly:
| Metric | Why underwriters pull it |
| -------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| **Net collection rate** | Whether you collect what you're entitled to, measured against adjusted production. Below 95% signals revenue cycle problems. |
| **Hygiene reappointment %** | Whether the future hygiene schedule is being rebuilt as patients leave; published consultant benchmarks often cite 85–95% for higher-performing practices1 |
| **PPO write-off %, by plan, trended** | Which fee schedules reduce margin and whether the payer mix is shifting toward larger discounts |
| **True denial rate**, separated from downgrades and frequency limits | Operational quality. Downgrades and exhausted maximums reflect benefit design rather than billing failure. See [Denials vs downgrades](/concepts/payments/denials-vs-downgrades) |
| **Days in AR** and % over 90 days | Working capital intensity |
| **Clean claim rate** | Front-end discipline, including attachments |
| **Production per dentist FTE** | Productivity, and key-person dependence |
| **Dentist and hygienist retention / turnover** | Continuity of clinical capacity and the cost of replacing providers |
| **Payer concentration** | Dependence on one contract, often the local Delta Dental member company |
| **Credentialing pipeline** | Dentists and locations that are enrolled, in process, or stalled, with expected revenue waiting on payer enrollment |
| **Same-store growth** | Growth from existing offices compared with growth from adding offices; see below |
## Same-store growth: define it honestly
Large DSO platforms are privately held and do not publish a common same-store benchmark. Define the metric in writing and apply it consistently because investors will test your calculation.
* Which offices are in the same-store base, commonly those owned for the full current and prior period
* When a de novo enters the base (at open? at month 13? at maturity?)
* When an acquisition enters the base, and whether its pre-close trailing revenue counts
* Whether the measure is production, net revenue, or collections
Disclose the definition in the reporting package and explain any change to it. If the same-store base changes from quarter to quarter without a reconciliation, a quality-of-earnings review may treat the trend as unreliable.
## When audited financials become necessary
| Trigger | Typically requires |
| ---------------------------- | ---------------------------------------------------------- |
| Seed / early venture | Internal statements, sometimes reviewed |
| Institutional Series A+ | Reviewed, often audited |
| Bank debt | Reviewed or audited, depending on facility size |
| Private equity transaction | **Audited**, plus a third-party quality-of-earnings review |
| Sale to a strategic acquirer | Audited plus QoE |
## What auditors will ask about consolidation
Expect the PCs to be **consolidated** into audited financials even though the DSO owns no equity in them.
Under **ASC 810**, an entity consolidates a variable interest entity when it is the primary beneficiary, having both **power** (directing the activities most significantly affecting economic performance) and **economics** (absorbing losses or receiving benefits that could be significant). In a typical DSO structure, the management services agreement (MSA) supplies the power and the management fee supplies the economics. ASC 810's related-party guidance also treats parties subject to **agreements restricting transfer of their interests** as de facto agents, which describes your friendly dentist under the transfer restriction agreement.2
Auditors will want: the MSA, the transfer restriction agreement, evidence the fee was paid, and the intercompany reconciliations. Have them ready.
## Verify it worked
* [ ] All seven documents produced monthly
* [ ] Per-office breakdown where a PC holds multiple offices
* [ ] DSO standalone shown separately and labeled
* [ ] Eliminations shown as a visible column
* [ ] EBITDA bridge includes the accrued-but-uncollected fee deduction
* [ ] Hygiene reappointment and PPO write-off trends in the KPI pack
* [ ] Same-store definition written down and disclosed
* [ ] Fee-coverage ratio reported per PC with a trend
* [ ] AR waterfall built from 835 data
* [ ] Consolidation documentation ready for auditors
## Common failure modes
| Failure | Consequence |
| -------------------------------------------- | ----------------------------------------------- |
| Presenting consolidated revenue as the DSO's | Credibility problem in diligence |
| No DSO standalone view | Investors cannot underwrite what they're buying |
| Eliminations hidden in the totals | Reader can't verify |
| Omitting the uncollected-fee adjustment | The buyer finds it and discounts more broadly |
| PC-level blends with no per-office detail | The weakest office is invisible until diligence |
| Same-store base redefined silently | A QoE finding that taints the rest of the pack |
| No hygiene reappointment tracking | The valuation driver goes unreported |
| No fee-coverage reporting | The weakest PC is invisible until diligence |
| Building the package only when raising | Months of reconstruction at the worst time |
## Sources
1. Hygiene reappointment benchmarks are consultant-sourced and directional: [recall and hygiene retention benchmarks](https://cast-hub.com/dental-practice-revenue/recall-and-hygiene-retention/) (high performers pre-book 85–95%; roughly half of practices pre-book at all).
2. FASB ASC 810, Consolidation. See BDO, [Control and Consolidation Under ASC 810](https://www.bdo.com/getmedia/8a458199-b9e0-4445-8b0e-f8f1bd7a180f/Control-and-Consolidation-Under-ASC-810.pdf) (May 2024); Deloitte, [Primary Beneficiary](https://dart.deloitte.com/USDART/home/codification/broad-transactions/asc810-10/roadmap-noncontrolling-interests/chapter-2-glossary-selected-terms/2-22-primary-beneficiary). Confirm application to your facts with your auditors.